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Proposed changes to offshore oil and gas decommissioning framework

In December, the Department of Industry, Science, Energy and Resources released its consultation paper on enhancing Australia’s offshore oil and gas decommissioning framework.

Decommissioning offshore oil and gas installations is not an easy feat. The need for regulation and frameworks to ensure the Australian security and interests are maintained is paramount. This consultation process seeks to ensure this. It is also likely to play a role in the Government’s gas-led recovery from COVID that was announced last year.

There are three areas where improvements are proposed to be made.

1. Increased financial oversight and assurance

It is proposed that the types of transactions that require Government assessment and approval will be expanded to include change in ownership or control through a corporate merger, acquisition or takeover.

The financial assurance requirements for decommissioning are also proposed to change. These would include:

●    Expanding the monitoring and compliance function of the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) to ensure a titleholder has sufficient financial assurance (as defined in section 571 of the Offshore and Petroleum Greenhouse Gas Storage Act 2006 (CTH) (OPGGSA);
●    Titleholders having to provide tangible financial assurance, for example in the form bonds or securities, to meet the costs and liabilities associated with carrying out petroleum activities, including decommissioning. This expands the existing requirements which only require financial assurance for extraordinary costs or liabilities, like an oil spill. It also means that an insurance policy may not be sufficient financial assurance; and
●    NOPSEMA maintains responsibility for enforcing financial assurance requirements, with discretion for the level of form of assurance to be provided.

2. Enhanced planning and management

Under the proposed changes, titleholders will need to address early stage decommissioning in their Field Development Plan (FDP). A mandatory review period of an FDP will also be introduced. This means that the FDP may be subject to review to ensure the project continues to be economically viable and ensure that they can meet their decommissioning obligations.

3. Increased oversight, accountability and trailing liability

Several of the proposed changes focus on improving accountability including:

●    Allowing remedial directions under the OPGGSA to be used earlier in a project;
●    Introducing the ability to review and amend remedial directions regularly;
●    Enabling monitoring post-decommissioning through additional regulatory tools and licences;
●    Allowing public comment on decommissioning environmental plans, public reporting of environmental performance on petroleum activity that is underway and publication of close out reports once the activity is completed;
●    Giving NOPSEMA increased powers in relation to the sale of an offshore oil and gas asset before and during decommissioning, even if there’s a change of titleholder;
●    Introducing the concept of a ‘related person’ for trailing liability. This means that parent companies could be required to remediate if a titleholder doesn’t meet its decommissioning obligations; and
●    Giving NOPSEMA and the Minister power to ‘call back’ a titleholder to remediate even if their interest in the petroleum title has ceased. This will be broader than the current ‘call back’ provisions that only apply where a title has been terminated, expired, revoked, cancelled or surrendered.

These changes potentially affect both buyers and sellers of offshore oil and gas assets and will no doubt be a significant consideration in those transactions. Of course, more detail is required before the true impact can be assessed, but this appears to be a significant overhaul. It is anticipated that the framework will be implemented later this year and that it may be backdated to 14 December 2020.

 

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